MILWAUKEE, Oct. 29, 2019 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (NYSE: AOS) today
announced third quarter net earnings of $87.3 million or $0.53 per share on third quarter sales of
$728.2 million. Net earnings per
share declined 13 percent compared with third quarter 2018 net
earnings per share of $0.61.
Sales in the quarter ended September
30 were three percent lower compared with sales of
$754.1 million during the same period
in 2018.
"Volume growth in U.S. water heaters and boilers drove solid
North America sales and segment
margin improvement in the quarter," said Kevin Wheeler, president and chief executive
officer. "China continues to be
challenging and sales and earnings declines in the region more than
offset the top- and bottom-line growth in North America."
North America
segment
Third quarter sales of $514.6
million for the North
America segment, which includes U.S. and Canadian water
heaters, boilers and water treatment products, increased six
percent compared with $486.9 million
in the third quarter of 2018. Higher water heater and boiler
volumes in the U.S. were supplemented by approximately $16 million of sales in the recently acquired
Water-Right business.
North America segment earnings
of $121.6 million were 15 percent
higher than segment earnings of $105.6
million in the same quarter in 2018. This was primarily
driven by the favorable impact to profits from higher U.S. water
heater and boiler volumes, as well as lower steel costs,
improvement in the profitability of water treatment sales (without
Water-Right) and incremental profits from Water-Right. As a result,
third quarter 2019 segment margin of 23.6 percent improved from
21.7 percent achieved in the same period last year.
Rest of World segment
Sales of this segment, which is primarily comprised of
China, Europe and India, decreased 20 percent in the third
quarter of 2019 to $220.3 million
compared with $274.1 million in the
year-ago quarter. China sales
declined 20 percent in local currency, primarily related to
continued weak consumer demand and previously disclosed above
normal channel inventory levels. The weaker Chinese currency
unfavorably impacted translated sales by approximately $6 million. India sales grew nine percent in local
currency compared with the same period in 2018.
Segment earnings of $4.1 million
declined significantly compared with $39.1
million in the third quarter of 2018. The unfavorable impact
to profits from lower China sales
and a higher mix of mid-price products, which have lower margins,
more than offset the benefits to profits from lower SG&A
expenses. As a result, segment margin declined to 1.9 percent
compared with 14.3 percent the same quarter of 2018.
Share repurchase and other items
During the first nine months of 2019, the company repurchased
approximately 4.9 million shares of common stock for a total of
$230.0 million. Approximately 4.1
million shares remained on the company's existing repurchase
authority at the end of September.
Cash and investments, primarily located outside the U.S.,
totaled $513.8 million as of
September 30, 2019. Cash provided by
operations during the first nine months of 2019 of $280.0 million was lower than the $289.2 million in the same period of 2018,
primarily due to lower earnings, which were partially offset by
lower investment in working capital compared with the prior
year.
2019 outlook
"I am pleased with the solid performance of North America water heaters and boilers. Our
North America water treatment
results continue to improve, and our Water-Right acquisition is
meeting our expectations," commented Wheeler. "We face headwinds in
our markets in China, and we
anticipate that those headwinds and elevated channel inventory
levels will remain through the fourth quarter. We project full year
China sales to decline 19 percent
in local currency and 23 percent in U.S. dollars. As a result, we
revised our 2019 EPS guidance to a range of between $2.25 and $2.28 per
share, a thirteen percent decline at the midpoint compared with
last year."
"We remain confident in the long-term stability of our
North America replacement demand
for water heaters and boilers, which we estimate to be
approximately 85 percent of North
America water heater and boiler volumes, and optimistic
about future growth opportunities in China and India," concluded Wheeler. "We have the right
technologies, people and products to address demands for
energy-efficient products in water heating and consumer water
treatment needs as the global water infrastructure ages."
A. O. Smith will broadcast a live conference call at
10 a.m. Eastern Daylight time today.
The call can be heard on the company's web site, www.aosmith.com.
An audio replay of the call will be available on the company's web
site after the live event.
Forward-looking statements
This release contains statements that the company believes
are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements generally can be identified by the use of words such as
"may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "forecast," "continue," "guidance" or words of similar
meaning. All forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ
materially from those anticipated as of the date of this
release. Important factors that could cause actual results to
differ materially from these expectations include, among other
things, the following: a further weakening of the Chinese economy
and/or a further decline in the growth rate of consumer spending or
housing sales in China; negative
impact to the company's businesses from international tariffs and
trade disputes; potential weakening in the high efficiency boiler
segment in the U.S.; significant volatility in raw material prices;
inability of the company to implement or maintain pricing actions;
potential weakening in U.S. residential or commercial construction
or instability in the company's replacement markets; foreign
currency fluctuations; the company's inability to successfully
integrate or achieve its strategic objectives resulting from
acquisitions; competitive pressures on the company's businesses;
the impact of potential information technology or data security
breaches; changes in government regulations or regulatory
requirements; and adverse developments in general economic,
political and business conditions in key regions of the world.
Forward-looking statements included in this press release are made
only as of the date of this release, and the company is under no
obligation to update these statements to reflect subsequent events
or circumstances. All subsequent written and oral
forward-looking statements attributed to the company, or persons
acting on its behalf, are qualified entirely by these cautionary
statements.
About A. O. Smith
A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is a global leader applying
innovative technology and energy-efficient solutions to products
manufactured and marketed worldwide. Listed on the New York Stock
Exchange (NYSE), the company is one of the world's leading
manufacturers of residential and commercial water heating equipment
and boilers, as well as a manufacturer of water treatment and air
purification products. For more information, visit
www.aosmith.com.
A. O. SMITH
CORPORATION
|
Statement of
Earnings
|
(condensed
consolidated financial statements -
|
dollars in millions,
except share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
728.2
|
|
$
|
754.1
|
|
$
|
2,241.8
|
|
$
|
2,375.4
|
Cost of products
sold
|
|
444.0
|
|
|
448.1
|
|
|
1,356.1
|
|
|
1,406.9
|
Gross
profit
|
|
284.2
|
|
|
306.0
|
|
|
885.7
|
|
|
968.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
172.3
|
|
|
177.6
|
|
|
535.7
|
|
|
567.7
|
Restructuring and
impairment expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6.7
|
Interest
expense
|
|
3.1
|
|
|
2.0
|
|
|
8.5
|
|
|
6.6
|
Other
income
|
|
(4.0)
|
|
|
(5.1)
|
|
|
(15.1)
|
|
|
(15.5)
|
Earnings before
provision for income taxes
|
|
112.8
|
|
|
131.5
|
|
|
356.6
|
|
|
403.0
|
Provision for income
taxes
|
|
25.5
|
|
|
26.9
|
|
|
77.9
|
|
|
85.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
87.3
|
|
$
|
104.6
|
|
$
|
278.7
|
|
$
|
317.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.53
|
|
$
|
0.61
|
|
$
|
1.66
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
165,543
|
|
|
172,085
|
|
|
167,562
|
|
|
172,718
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2019
|
|
2018
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
219.4
|
|
$
|
259.7
|
|
Marketable
securities
|
|
294.4
|
|
|
385.3
|
|
Receivables
|
|
614.1
|
|
|
647.3
|
|
Inventories
|
|
310.0
|
|
|
304.7
|
|
Other current
assets
|
|
66.5
|
|
|
41.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,504.4
|
|
|
1,638.5
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
543.6
|
|
|
540.0
|
|
Goodwill and other
intangibles
|
|
886.9
|
|
|
806.1
|
|
Operating lease
assets
|
|
48.3
|
|
|
-
|
|
Other
assets
|
|
84.7
|
|
|
86.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
3,067.9
|
|
$
|
3,071.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
483.1
|
|
$
|
543.8
|
|
Accrued payroll and
benefits
|
|
61.8
|
|
|
79.4
|
|
Accrued
liabilities
|
|
135.9
|
|
|
120.4
|
|
Product
warranties
|
|
42.8
|
|
|
41.7
|
|
Debt due within one
year
|
|
6.8
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
730.4
|
|
|
785.3
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
312.4
|
|
|
221.4
|
|
Pension
liabilities
|
|
36.5
|
|
|
49.4
|
|
Operating lease
liabilities
|
|
39.6
|
|
|
-
|
|
Other
liabilities
|
|
292.8
|
|
|
298.4
|
|
Stockholders'
equity
|
|
1,656.2
|
|
|
1,717.0
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
3,067.9
|
|
$
|
3,071.5
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2019
|
|
|
2018
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
278.7
|
|
$
|
317.9
|
|
Adjustments to
reconcile net earnings to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
58.1
|
|
|
53.2
|
|
|
Stock based
compensation expense
|
|
12.3
|
|
|
9.7
|
|
|
Net changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
(43.8)
|
|
|
(70.9)
|
|
|
Noncurrent assets and liabilities
|
|
(25.3)
|
|
|
(20.7)
|
Cash Provided by
Operating Activities
|
|
280.0
|
|
|
289.2
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(50.3)
|
|
|
(58.5)
|
|
Acquistion
|
|
(107.0)
|
|
|
-
|
|
Investment in
marketable securities
|
|
(237.3)
|
|
|
(345.4)
|
|
Net proceeds from
sale of marketable securities
|
|
318.8
|
|
|
418.3
|
Cash (Used in)
Provided by Investing Activities
|
|
(75.8)
|
|
|
14.4
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
incurred (repaid)
|
|
97.9
|
|
|
(217.1)
|
|
Common stock
repurchases
|
|
(230.0)
|
|
|
(106.0)
|
|
Payment of contingent
consideration
|
|
(1.0)
|
|
|
(2.3)
|
|
Net (payments)
proceeds from stock option activity
|
|
(1.4)
|
|
|
0.7
|
|
Dividends
paid
|
|
(110.0)
|
|
|
(92.5)
|
Cash Used In
Financing Activities
|
|
(244.5)
|
|
|
(417.2)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents
|
|
(40.3)
|
|
|
(113.6)
|
|
Cash and cash
equivalents - beginning of period
|
|
259.7
|
|
|
346.6
|
Cash and Cash
Equivalents - End of Period
|
$
|
219.4
|
|
$
|
233.0
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
514.6
|
$
|
486.9
|
|
$
|
1,560.4
|
$
|
1,522.8
|
|
|
Rest of
World
|
|
220.3
|
|
274.1
|
|
|
701.5
|
|
876.0
|
|
|
Inter-segment
sales
|
|
(6.7)
|
|
(6.9)
|
|
|
(20.1)
|
|
(23.4)
|
|
|
|
|
|
|
$
|
728.2
|
$
|
754.1
|
|
$
|
2,241.8
|
$
|
2,375.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
North America
(1)
|
$
|
121.6
|
$
|
105.6
|
|
$
|
360.5
|
$
|
336.5
|
|
|
Rest of
World
|
|
4.1
|
|
39.1
|
|
|
38.8
|
|
109.8
|
|
|
Inter-segment
earnings elimination
|
|
-
|
|
-
|
|
|
(0.1)
|
|
-
|
|
|
|
|
|
|
|
125.7
|
|
144.7
|
|
|
399.2
|
|
446.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
(9.8)
|
|
(11.2)
|
|
|
(34.1)
|
|
(36.7)
|
|
Interest
expense
|
|
(3.1)
|
|
(2.0)
|
|
|
(8.5)
|
|
(6.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
112.8
|
|
131.5
|
|
|
356.6
|
|
403.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
25.5
|
|
26.9
|
|
|
77.9
|
|
85.1
|
|
Net
earnings
|
$
|
87.3
|
$
|
104.6
|
|
$
|
278.7
|
$
|
317.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
includes
restructuring and impairment expenses of:
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
6.7
|
A. O. SMITH
CORPORATION
|
Adjusted Earnings
and Adjusted EPS
|
(dollars in millions,
except per share data)
|
(unaudited)
|
|
The following is a
reconciliation of net earnings and diluted EPS to adjusted earnings
(non-GAAP) and adjusted EPS (non-GAAP):
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Net Earnings
(GAAP)
|
$87.3
|
|
$104.6
|
|
$278.7
|
|
$317.9
|
Restructuring
and impairment expenses, before tax
|
-
|
|
-
|
|
-
|
|
6.7
|
Tax effect of
restructuring and impairment expenses
|
-
|
|
-
|
|
-
|
|
(1.7)
|
Adjusted
Earnings
|
$87.3
|
|
$104.6
|
|
$278.7
|
|
$322.9
|
|
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$0.53
|
|
$
0.61
|
|
$
1.66
|
|
$
1.84
|
Restructuring
and impairment expenses per diluted share, before tax
|
-
|
|
-
|
|
-
|
|
0.04
|
Tax effect of
restructuring and impairment expenses per diluted share
|
-
|
|
-
|
|
-
|
|
(0.01)
|
Adjusted
EPS
|
$0.53
|
|
$
0.61
|
|
$
1.66
|
|
$
1.87
|
A. O. SMITH
CORPORATION
|
Adjusted
Segment Earnings
|
(dollars in
millions)
|
(unaudited)
|
|
The following is a
reconciliation of reported segment earnings to adjusted segment
earnings (non-GAAP):
|
|
|
Three Months
Ended
|
|
Nine Months
Ended,
|
|
September
30,
|
|
September
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Segment
Earnings (GAAP)
|
|
|
|
|
|
|
|
North America
|
$ 121.6
|
|
$ 124.9
|
|
$ 360.5
|
|
$336.5
|
Rest of World
|
4.1
|
|
34.7
|
|
38.8
|
|
109.8
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
(0.1)
|
|
-
|
Total Segment
Earnings (GAAP)
|
$ 125.7
|
|
$ 159.6
|
|
$ 399.2
|
|
$446.3
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
North America restructuring and impairment
expenses
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
Rest of World
|
-
|
|
-
|
|
-
|
|
-
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
-
|
|
-
|
Total
Adjustments
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
|
|
|
|
|
|
|
|
Adjusted
Segment Earnings
|
|
|
|
|
|
|
|
North America
|
$121.6
|
|
$124.9
|
|
$360.5
|
|
$343.2
|
Rest of World
|
4.1
|
|
34.7
|
|
38.8
|
|
109.8
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
(0.1)
|
|
-
|
Total
Adjusted Segment Earnings
|
$125.7
|
|
$159.6
|
|
$399.2
|
|
$453.0
|
A. O. SMITH
CORPORATION
|
2019 EPS Guidance
and Adjusted 2018 EPS
|
(unaudited)
|
|
|
|
|
|
The following is a
reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items
are net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
Guidance
|
|
2018
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$ 2.25 -
2.28
|
|
$2.58
|
|
Restructuring and
impairment expenses per diluted share
|
-
|
|
0.03
|
Adjusted
EPS
|
$ 2.25 -
2.28
|
|
$2.61
|
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SOURCE A. O. Smith Corporation